UK drug giant GlaxoSmithKline and US drug company Pharmacia have been sued by the state of New York, alleging that they inflated drug prices.

On Thursday, New York Attorney General Eliot Spitzer charged both companies with using illegal schemes to inflate the price of drugs, costing consumers and government health plans hundreds of millions of dollars.

We will vigorously defend the litigation

Glaxo spokesperson Martin Sutton

"With this action, we are sending a strong signal that the state of New York will use the law to bring healthcare costs
under control," Mr Spitzer said in a news release.

Franco-German drugmaker Aventis Pharmaceuticals received a pre-litigation notice but was not officially named in the court case.

Although the total amount of the claim was not made public, Mr Spitzer said it was expected to be in the tens of millions of
dollars.

In New York, shares in GlaxoSmithKline closed down 1 cent at $35.85 (£22.14) while Pharmacia was down 45 cents at $39.20.

Cost explosion

"New Yorkers face a health care crisis - a crisis driven to a large degree
by the enormous growth in the cost of prescription drugs. This cost explosion is
eroding individuals' health care and is a large factor in the massive state
deficit," Mr Spitzer said.

The state of New York charged both companies consumer fraud, commercial bribery and making false statements to government health plans about drugs, including those for cancer treatment.

New Yorkers face a health care crisis - a crisis driven to a large degree
by the enormous growth in the cost of prescription drugs. This cost explosion is
eroding individuals' health care and is a large factor in the massive state
deficit

New York Attorney General Eliot Spitzer

The alleged price fixing scheme led to enormous overpayments by government health plans, Mr Spitzer said.

For example, Mr Spitzer said the government's Medicare system could have saved itself $21.2m dollars for Pharmacia's Adriamycin drug if wholesale catalogue prices were used as the basis for reimbursement instead of the published average wholesale prices used by the
companies.

The court case revolves around the difference between set rates, or average wholesale prices, that insurance companies and government health plans, such as Medicare and Medicaid, use to
reimburse physicians and pharmacies for certain drugs and the amounts the drug companies actually charge.

A spokeswoman for Glaxo said the companies do not determine the average wholesale prices.

She added that the major pharmaceutical companies were being unfairly singled out.

Mr Spitzer said he wanted to enforce reforms that would eliminate the incentive for doctors to recommend particular drugs or treatments because they give them higher compensation.